THE KASB REVIEW

STOCK MARKET AT A GLANCE

 

 

By SHABBIR H. KAZMI
Updated October 04, 2003

 

MARKET THIS WEEK

The index grew by 0.7% WOW as the market struggled to offset Monday's fall. Once again, the week started off quite badly, losing over 4% of its value on Monday as selling continued from last week. The selling was accompanied by very low volume levels indicating a lack of interest on the part of investors who were more interested in the expectations of increases in T-Bill yields.

 

 

 

Furthermore, there didn't seem to be any good news around. This negativity was however, offset by the SBP rejecting bids for 12mth T-Bills, signaling that it wants interest rates to remain stable at their current levels. This caused yields on T-Bills and PIBs in the secondary market to fall, attracting investors to the stock market once again, where some shares at their lower levels were offering relatively attractive yields. The last day of the week however, was affected by the sectarian killings in Karachi and news of the test launch of Pakistan's new short-range nuclear capable ballistic missile.

OUTLOOK FOR THE FOLLOWING WEEK

The coming week looks to be relatively positive. The stable interest rates signaled by the SBP and the relatively low index levels should ensure that yields on the market continue to look relatively attractive, which should encourage increased market participation by investors during the week. The outcome of tomorrow's PIB auction will dictate the market direction next week. However, the market may be affected if there are attacks in Karachi in retaliation for the sectarian attack on Friday.

FUNDAMENTAL CHANGES

The major developments this week were:

•The government confirmed its intentions of not to issue 15 year and 20 year jumbo bonds. However, it plans to raise PkR50bn from the local market through PIB sales over the next three months. A nominal amount under 15 years bond is likely which will be used as a benchmark for housing finance schemes.

•The CCoP approved the divestment of 3.8% of NBP and 2.5% of OGDCL with an equal green shoe option for OGDCL.

•ICI announced its plans to invest PkR350mn to convert its Soda Ash plant from natural gas to coal. This conversion is expected to be completed within FY04.

•The SBP announced its intentions to allocate $3.2bn to foreign fund managers for investment purposes. It plans to hold the remaining $5.8bn for monetary policy management purposes.

•The auto Task Force delayed the submission of its final report to the Federal Cabinet, which was due on September 30, 2003, by 2 weeks. It has also increased the scope of its report to include PAAPAM.

 

 

•The Privatization Commission set the price for NBP's share issue at PkR46/share, i.e. at a discount to the last 30 trading sessions' average price.

•UBL has become adviser to and underwriter for World Call Broadband Limited, which is planning to apply for a listing at the KSE. The size of the company is likely to be PkR1.5bn, of which PkR150mn is likely to be placed in the pre-IPO with AKD Securities and Elixir Securities, PkR560mn is to be invested by foreign investors and PkR500mn invested by the World Call Group.

•PICT recorded profits for the eight and a half months ending June 30, 2003 of PkR18.9mn, of which just over PkR2mn was made in the last month of the FY.

•The government has approved KESC's request to purchase electricity directly from Hubco. Hubco is the only IPP in close proximity with KESC that has capacity to spare. The linkup is expected by 2006.

•The CBR has improved on its tax collection record by collecting its target of PkR92.2bn for 1QFY04 in September.

THIS WEEK'S TOP STORIES

ENGRO CHEMICALS — PKR2BN DEBT RE-PROFILING!

The brilliant management at Engro kept its tradition of excellence alive by coming up with another PkR2bn debt re-profiling exercise to further lower its financial charges. In the current fertilizer scenario, where there is very limited room to improve prices while costs are continuously going up, the debt re-profiling is something which can help the company minimise the impacts of a subsidy shock which the company is likely to see this quarter. Moreover, the management of Engro has also taken vital steps like improvement in fuel efficiency, further additions in capacity without spending too much and investment in other companies. We are using relative PER valuation for Engro which assigns a fair value of PkR92.6 per share to the company. At present the stock is trading at 10% discount to this value. Owing to a lower discount, we suggest a Neutral weight. As far as the immediate impact of the re-profiling development, we believe that it is already in the price.

EMENT SECTOR UPDATE — IMPROVING OUTLOOK

Growth in demand, stable cement prices and increasing exports to Afghanistan are likely to be a few of the major earning drivers for the cement industry in FY04. According to the numbers released by APCMA, cement dispatches witnessed 17.2% YoY growth during 1QFY04 on behalf of 1) 10.8% growth in local demand owing to increased construction activities within the country, and 2) 231% YoY increase in cement exports to Afghanistan. Cement prices remained within the range of PkR192-230/bag in both Southern and Northern regions during the period under review. Going forward, we expect local demand to improve at an average growth rate of 10% during current financial year. We also expect the exports to Afghanistan to increase significantly due to 1) lower competition from Iranian cement and 2) increasing construction activities in Afghanistan. We are in the process of changing our underweight stance for the cement sector and will be back with a detailed sector note next week.

 

 

MARKET ROUNDUP

..

LAST WEEK

THIS WEEK

% CHANGE

Mkt. Cap (US $ bn)

15.90

15.95

0.31%

Avg. Dly T/O (mn. shares)

350.00

259.33

-25.91%

Avg. Dly T/O (US$ mn.)

308.40

289.96

-5.98%

No. of Trading Sessions

5

5

 

KSE 100 Index

4163.23

4192.40

0.70%

KSE ALL Share Index

2662.51

2671.57

0.34%

 

 

Source: KSE, MSCI, KASB